How taking out a loan to pay for a bond deposit could derail your plans

What do you do if you find yourself in a situation where your home loan has been pre-approved, but at 90% and not the 100% bond you were expecting to receive?

Most people who don’t have immediate access to funds would likely take out a loan to cover the shortfall of the home loan amount, but banks are warning that it’s a risky move that could wind up costing you your entire home loan at the end of the day.

That’s because banks continuously monitor their clients’ credit profiles and perform affordability checks that are regularly updated until the time your bond registration process has been finalised.

These checks could alter the status of your home loan if you take on more debt while the process is still ongoing and if you’ve taken on too much additional debt, you could find your home loan either being reduced, repriced or – in the worst case scenario – the bank could decide to cancel your home loan in its entirety.

“Taking out any form of loan while applying for a bond or during the registration process may result in the bank reversing its initial decision to grant you a home loan. This is due to the fact that your credit profile will be in a poorer state as you will now be required to repay both your home loan and additional loan instalments monthly,” says FNB Housing Finance CEO Lee Mhlongo.

You should also ensure that you keep up to date with any other credit or loan repayment obligations that you may have during the home loan finalisation period because defaulting during this period could also negatively affect your home loan.

If you’re a low-income earner earning R3 501-R15 000 per month, the good news is that your home-ownership dreams could become a reality much faster than you think thanks to the government’s relaunch of a housing subsidy for first-time homebuyers with the Finance Linked Individual Subsidy Programme with revised purchase price caps.

People who earn more than R3 500 are entitled to a once-off housing subsidy up to R87 000, while people who earn R15 000 per month are entitled to a subsidy worth up to R20 000.

While the subsidy amount for individuals in the upper bracket isn’t particularly high, an extra R20 000 could go a fair way towards helping you cover your deposit.

“If a R20 000 subsidy is paid into a bond of R500 000, you can save almost R100 000 [over the term of the bond] and reduce your bond term from 20 years to just under 18 years,” property lawyer Meyer de Waal was quoted saying in an IOL report.

“Similarly, a subsidy of R40 000 awarded to a qualifying home-owner with an income of R11 700, who may qualify for a home loan of R400 000, may save more than R170 000 on bond repayments, and reduce the bond term from 20 years to 15-and-a-half years.”

To qualify for the subsidy, applicants must be South African citizens or hold a valid residence permits and be over 18 years of age. If you’re single, you must have dependents.